Sell vs Rent and qualifying for capital gains exemption

[Melinda Brown]

Hello, I've been following BP for some time now and just am getting into the real estate world.

My spouse and I have a primary residence (5/3b, 3K sq ft) in Monroe, Washington that we will have lived in for 2 years come August 2020. It a newer home that we payed 550K for. We don't want to carry the mortgage any longer and it's just too much house for us so we're considering renting vs selling.

The area is growing and we think housing prices will continue to rise in the area. Not sure what it will appraise for now. Currently Zillow estimates 650, Redfin estimates 570. Our neighbors across the street with a nearly identical home said theirs recently appraised for 670, while another similar one down the street sold this winter for 580. It's so confusing. 

If we do sell and for a good profit, ideally we'd close after the 2 year mark to avoid capital gains tax. 

As far as renting...we haven't gotten much traction in the short term rental world with this house, but do have some people interested in renting from May-Aug (600+/month cash flow). My question is- Would doing an air bnb rental for 3 months disqualify us from the capital gains tax exclusion?

Alternatively we've considered holding onto the property and renting for a couple years in hopes it will appreciate as we predict. However we'd be taking a loss on it. Mortgage is 3500 and market rent is 2-3k/month.We've also considered refinancing to lower the mortgage and make renting a potential cash flow option.

Would renting, even for a while with little to no cash flow be wise if we think the home will appreciate and have better resale value in a year or two? Our ultimate real estate goal is to use the BRRR strategy with our future purchases, but somehow I want to turn this house into a good investment. We have one other rental we are currently rehabbing in Kent, WA that should return good cash flow when completed.

Thank you so much for any advice you can provide!

Melinda